Ethics and Compliance Paper
Shalom J. Duarte, Chris Campbell, Eric Newhart, & Ron Reda
FIN/370
June 18, 2013
James Campbell

Ethics and Compliance Paper

Strategic planning and financial preparation are vital to ensure the success of big retail corporation such as Lowes. This type of planning happens when a company sets up both long term and short term goals for their strategic marketing and planning to achieve financial success. Strategic initiatives can be created in various areas, such as in the area of new products being rolled out and new departments being created. In particular a strategic plan, determines a company’s long term goals and then identifying the best approach for achieving those goals. From the financial perspective, financial planning initiatives are long-term plans aimed at generating capital with objectives focused on greater return on assets, growth in market share, and at solving foreseeable problems.
When Strategic plans are met, such as plans focused on certain products or departments, it helps the overall health of the company’s financial status in different areas such as with the store’s revenue, over head spending control, and maintaining a store’s budget. Both Strategic and financial planning share the same company goals for success and the understanding of where the financing must come from to accomplish these goals. Lowes is a leader in home improvement and is committed to never stopping improvement. Lowes mission is to deliver better customer experience, to drive long term sales growth, increased profitability and share holder value. One of Lowes strategic plans is to make the shopping experience for home improvements simple from every purchasing opportunity. By doing this, the company hopes that consumers do not hold back on starting home improvement projects because they do not know how to start. They hope to do this without losing sight of the importance of sustaining the retail perspective of their sales and quality. The action that Lowes implements for this strategic plan is to focus in on retail relevance, value improvement and product differentiation. With this said value improvement improves the core business by improving line design and lowering cost per unit. Product differentiation draws enthusiasm in stores with great product displays and techniques.
Lowe’s 2013 initiatives will have an effect on costs and sales. It is called the Value Improvement initiative. The initiative is to enhance customer experience by focusing on product offerings, increasing labor to better serve customers, and improving information technology. The focus is on Lowe’s making these efforts simple and seamless to the customer which is a difficult task when implementing software.
Lowe’s has a budget of $1.25 billion for fiscal year 2012 (Lowe’s, 2013). Estimates of 40% of this budget will go toward improving the customer experience.
One part of this year’s project is to add labor during weekday peak hours to close sales. Lowe’s wants to add 150 hours of labor per store each week. Lowe’s currently has approximately 245,000 employees, so adding four employees to each store seems minor but when considering they have over 1,700 stores, this is over 7,000 new employees. This complimented with an effort to have higher in-stock service levels is an educated move to bolster sales during the weekday to close the gap on weekend sales.
Another big piece of this year’s initiative is improving the information technology systems they want to use. Two major components of this are for delivery and operations and will account for part of the 40% of their 2013 budget. The dispatch system will improve route planning, which in return will give them greater fleet utilization that will cut costs. The other system is for providing operational efficiencies that will consolidate labor. Better coordination will improve customer satisfaction while reducing labor.
With the economy and the housing market showing some improvement, Lowe’s is focusing more on customer’s needs and efficiencies. Lowe’s realizes stricter lending for homes will continue to slow the housing market so they are prepared for that. These are initiatives are to improve increase earnings before interest and taxes to 10% of sales in the next two years.
Risks associated with the initiative and financial effects of Lowe’s strategic planning and financial preparation for future growth

Only two years ago in 2011, Lowe’s was opening 150 stores a year. Now in 2013, only 25 projected stores are to be opened. Why the downscale of new stores being opened? Economy for one; risks, and a projected financial plan in lieu of the 3% - 3.5% commercial construction growth rate and notwithstanding a decline in the home improvement market makes Lowe’s reconsider its strategic planning and in-store product line. Despite usual risks accustomed for growth and development in the retail environment, Peter Walstrom, associate director of research for the consumer cyclical sector admitted he is “very encouraged because even in a lackluster economic environment, the company still thinks that it can lever expenses at a 1% comparable store sales growth figure” (Walstrom, 2013).
Lowe’s is setting a 3% - 5% growth in expansion within five years. If they can control how they spend their money growing their store base, they can boost their “free money” aspect and look forward to a 10% growth expansion by 2015. It is a risk but the strategy is to limit the opening of new stores at a rapid rate in a recovering economy. By generating much more free cash, Lowe’s can expect a 15% growth and operating margins expansion. Walstrom concluded with, “Lowe's as well as Home Depot are doing a better job of allocating their product, driving customer traffic, and thinking about overall basket or customer transaction profitability” (Walstrom, 2013).
Chairman, President and CEO, Robert A. Niblock States, “A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to, changes in general economic conditions, such as continued high rates of unemployment, interest rate and currency fluctuations, higher fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability and increasing regulation of consumer credit and of mortgage financing, inflation or deflation of commodity prices, and other factors which can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, such as the psychological effects of lower home prices, and in the level of repairs, remodeling, and additions to existing homes, as well as a general reduction in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes designed to enhance our efficiency and competitiveness; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our traditional operating model to meet the changing expectations of our customers; (v) to maintain, improve, upgrade and protect our critical information systems; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax or environmental issues; and (ix) respond to unanticipated weather conditions that could adversely affect sales; In addition, we could experience additional impairment losses if the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values.” (Niblock, 2013). A strategic plan is what you look at to decide how you are going to get your organization from where it is today to where you want it to be in the future. Lowes has developed a strategic plan by developing long and short term goals to help reach and achieve their financial success. The strategic plan is focused on developing new products and improving departments in each Lowes location around the country to ensure consumers continue purchasing products and services. A strategic plan creates a foundation upon which to build off of and to continue to develop on a constant basis adjusting to consumers demands. Financial planning is involved with developing a strategic plan as well both share the same company goals to develop and improve. Lowes develops its strategic plan around its financing to ensure improvements are made around a budget and that those improvements do not exceed that budget which was developed during the planning phase. The value improvement initiative that Lowes will put into effect will enhance the consumers shopping experience by focusing on different product offerings and increasing each stores workforce to better serve each customer. Lowes is also focusing on improving its information technology by combining online shopping and in store purchasing.

References

Daily Finance. (2013, May). Lowe's Holds Annual Meeting of Shareholders. Retrieved from http://www.dailyfinance.com/2013/05/31/lowes-holds-annual-meeting-of-shareholders/ Lowes. (2012, April). Building Better Home Improvement Experiences. Retrieved from http://www.lowes.com/AboutLowes/AnnualReports/annual_report_12/index.html

Lowe's. (2013). Annual Reports. Retrieved from http://lowes.com

Morningstar. (2013). The Downside Risks for Home Depot and Lowe's. Retrieved from http://www.morningstar.com/cover/videocenter.aspx?id=376228